Carried Interest, VCs, Tobacco, and Godwin’s Law of Tax Policy

Having gotten used to the NVCA claiming responsibility for a dizzying percentage of jobs in America, plus most of the market capitalization on the major U.S. exchanges, as well as it arguing that teensy amounts of money allow it to claim a company as venture-backed, I had more or less decided there was nothing it could do to make me think it was any more shameless. It managed to un-convince me today with a new petition asking CEOs of venture-backed companies to sign up for the proposition that VCs should be paid more money.

I am impressed. Asking (generally) wealthy and secure VCs to deliver petitions to the (generally) young and insecure founders of the companies that they fund asking that said companies sign up so these VCs get more money? Cold, very cold.

But wait. It gets better. Check this paragraph from the petition:

When the policy makers double the tax on a certain activities, the message is clear: You want to discourage that type of behavior. We have seen this type of policy before in areas such as tobacco use. Does government really want less venture capital investment at a time when our country is in desperate need of it? Does venture capital investment fall into the same category as tobacco use?

Me! Pick me! Can I respond? Great! For starters, it is absurd to say that policy makers want to “double the tax on a [sic.] certain activities”. No, legislators recognize that VCs are getting a sweetheart deal on taxation of carried interest – they are investing other people’s money, but being taxed as if it’s their own. That’s not – what’s the word? – fair. And the idea that taxing carried interest as income will keep people out of the industry is demonstrably absurd: They’re all here now, despite most having earned zero carried interest in the last decade.

Finally, comparing venture capital to tobacco is almost too tonedeaf to know what to do with it. Does the NVCA really think it makes sense to compare venture capital – an addictive and dangerous form of capital – with tobacco – an addictive and dangerous substance? Oh, wait. Somewhat more seriously, this sort of histrionics is a Godwin’s law of tax policy: When someone begins making inane comparisons to tobacco taxation, you know the debate is over.